The world’s largest asset managers remain far off track to meet their commitments to claim net-zero carbon emissions by 2050, according to a global study released by FinanceMap during European hours Tuesday.
It’s arguably a softening of the financial fight to slow climate change that happens to coincide with select U.S. states’ actions to limit what some claim is “woke” investing, or using a screen on investments that includes environmental, social and governance (ESG) considerations, report authors stressed.
As the report, Asset Managers and Climate Change 2023, reveals, major U.S. investment firms — BlackRock
Fidelity, State Street
and Vanguard among them — are lagging further behind their European money-manager counterparts when it comes to efforts to reduce Earth-warming emissions than just a few years ago.
Collectively, the analysis found that asset managers hold 2.8 times more equity value in fossil-fuel-production companies than in green investments in the assessed sample. FinanceMap’s report scores the 45 largest global asset-management companies based on three criteria: equity portfolio analysis, stewardship of investee companies and sustainable finance-policy engagement.
“The data shows that while they may talk the talk, most asset managers are not walking the walk when it comes to using their influence to drive real change in investee companies and sustainable finance policy,” said Daan Van Acker, FinanceMap’s program manager.
All asset-management firms analyzed in the report were consulted on their results prior to release. Full data and results for each asset manager are available at FinanceMap.org.
“ The analysis found that asset managers hold 2.8 times more equity value in fossil-fuel-production companies than in green investments. ”
The declining scores in this follow-up report track actions by some of the most outspoken advocates for “greening” investment portfolios, such as at U.S.-based BlackRock, the world’s largest asset manager with more than $8 trillion in assets under its watch. It was BlackRock’s CEO, Larry Fink, who famously dedicated a “materially different” 2020 annual letter to shareholders and executives on sustainable investments. At the time, he called curbing climate change the “investment opportunity” of his lifetime and one that would deliver better returns over time than maintaining the status quo favoring traditional energy.
And Fink has said more recently that he bristles at the politicization of ESG principles.
To be sure, investment firms and the financial-services sector at large are challenged to maintain a fighter’s reputation when it comes to climate change. A firm, for instance, could run its headquarters on all renewable energy, or it might distance itself from coal, a legacy fossil fuel seen increasingly as a stranded asset in coming years, yet they might continue to finance emissions-linked natural gas
as part of diverse investment offerings.
The FinanceMap analysis finds that the world’s largest asset managers have not improved their climate performance over the past two years and in some cases have reversed positive trends, despite most having set net-zero-by-2050 targets through initiatives such as the high-level Net Zero Asset Managers (NZAM), a consortium promoted by U.S. climate envoy John Kerry and former Bank of England Gov. Mark Carney that has more than 300 signatories from the investing space with a combined $59 trillion assets under management.
Net-zero pledges have become popular language in the fight to slow manmade climate change, by which companies or countries, for instance, vow to either reduce burning emissions-generating fossil fuels like oil and gas in their operations by a certain year, or they pledge to offset the polluting energy they do produce by buying carbon-market credits from concerns who pollute less. They may also invest in programs to plant more trees, or make another green-minded policy move, all meant to take their own carbon contributions and influence to “net” zero.
A shift in the U.S.
While U.S. asset managers have always lagged their European competitors, this year, the report shows, U.S. asset managers appear to have pulled back even further on their ambition in top-line climate messaging, as well as in their engagements with “polluting” companies whose shares they might hold and in voting for more environmental-minded shareholder resolutions during proxy voting.
What’s more, FinanceMap charges, this shift has occurred amid growing moves by U.S. state governments to ban investing pension money and other accounts in investments that consider ESG guidelines when picking stocks.
Florida Gov. Ron DeSantis, a 2024 Republican presidential candidate, moved to prohibit state-run fund managers from taking ESG factors into consideration when making investments. Last year, Florida said it moved $2 billion in taxpayer assets from accounts with BlackRock because of ESG. Texas and other states have made similar anti-ESG vows.
“Corporations across America continue to inject an ideological agenda through our economy rather than through the ballot box. Today’s actions reinforce that ESG considerations will not be tolerated here in Florida…, DeSantis said in a release.
Some politicians were critical when a Department of Labor ruling last year removed penalties on retirement-fund and 401(k) managers who consider ESG themes as long as client goals and economic conditions were given priority.
Less influence on companies
Broadly speaking, the number of A-List asset managers, those carrying out ambitious and effective climate stewardship practices relative to best practice, has decreased by 45% since 2021, according to the FinanceMap findings.
BlackRock, for one, “has scaled back its calls [to companies it might invest in] to transition business models [toward climate-friendlier practices], while Fidelity Investments continues to be the least active manager in stewarding companies in the entire assessment,” the report says.
“ The number of A-List asset managers, those carrying out ambitious and effective climate stewardship practices relative to best practice, has decreased by 45% since 2021.”
For comparison, BlackRock recorded a drop in its stewardship grade in the report (C, down from B in 2021). This puts it in the middle of the pack among its U.S. peers Vanguard (D+), Fidelity Investments (E+) and State Street (C+).
The new FinanceMap report also found that support for climate-positive shareholder resolutions declined in 2022, with the average asset manager supporting just 50% of such resolutions, compared to 61% in 2021.
The U.S. also pales next to most European asset managers who top the chart when it comes to engagement with investee companies on climate: Legal & General Investment Management and the asset management arms of BNP Paribas
all scored within the A grade.
European money managers Natixis and Schroders received favorable nods, while BNP Paribas Asset Management was found to have 2.7 times higher exposure to green investments than the average asset manager in the report.